I develop a theory of corporate reputation as a source of sustainable
competitive advantage. I show how a relatively simple and reasonable
assumption regarding the dynamics of corporate reputation leads to a
self-reinforcing process whereby cross-firm differences in corporate
reputation (and performance) are significant and relatively permanent.
Numerical simulations suggest that persistence in cross-firm differences
is largely due to endogenous investment incentives: firms with higher
corporate reputation invest more in corporate reputation. I provide a
series of examples consistent with the model's prediction.

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